United Kingdom: Both the services and manufacturing PMIs decrease in July
August 3, 2018
In July, growth in the UK services sector was the slowest since April, with the IHS Markit/CIPS UK services Purchasing Managers’ Index (PMI) falling to 53.5 from 55.1 in the previous month. Although July’s figure remained above the 50-point threshold that separates expansion from contraction, it undershot market analysts’ expectations.
The downtick in July was driven by slower growth in business activity and incoming new work. Backlogs of work increased marginally, primarily due to a lack of suitably skilled workers, although businesses noted that efforts to improve productivity helped reduce the growing backlog in July. Meanwhile, employment growth slowed to the weakest pace in two years, amid tight labor market conditions and long-term business planning to automate work processes. Both input and output price inflation continued in July.
Tom Moore, Associate Director at IHS Market, said: “The service sector moved back into the slow lane in July as business activity growth lost momentum for the first time since the start of spring. While it’s difficult to quantify the precise impact of the recent heat wave on overall business performance, some survey respondents reported that a combination of hot weather and the World Cup had weighed on consumer footfall. […] Looking at demand fundamentals, service providers commented that Brexit uncertainty had held back new project wins, reflecting risk aversion and a wait-and-see approach to investment spending among international clients.”
The IHS Markit/CIPS manufacturing PMI inched down to 54.00 in July from 54.3 in June. Despite this, the index remained above the 50-point threshold that separates expansion from contraction in activity in the manufacturing sector, where it has been since August 2016.
July’s reading was due to slower increases in output and new orders, as weaker growth domestically offset a stronger expansion in new export orders. Input cost inflation remained high in July, resulting output cost inflation to accelerate to the highest rate since February.
UK Fixed Investment Forecast
FocusEconomics Consensus Forecast panelists see fixed investment growing 1.3% in 2018 and 2.1% in 2019.
Author: Edward Gardner, Economist